Facing Competing Priorities, API Backs Clean Keystone Bill Over RFS Reform

Source: By John Siciliano, Inside EPA • Posted: Wednesday, January 21, 2015

Despite its long-time calls for overhauling EPA’s renewable fuels standard (RFS), the oil industry says the Senate should delay debate over the issue until sometime later this year and block attempts by two senators to attach an amendment to the pending Keystone XL pipeline bill, another of the industry’s priorities, which would eliminate the RFS mandate for corn ethanol in favor of lower carbon cellulosic fuels.

Sens. Diane Feinstein (D-CA) and Pat Toomey (R-PA) introduced an amendment Jan. 16 to the pipeline bill, S. 1, which would eliminate the use of corn-based ethanol in complying with the RFS, with Feinstein underscoring her support for low-carbon cellulosic fuels over conventional biofuels produced using corn and other feed grains.

Feinstein argues in a press statement that the amendment “is a simple and smart modification of the [RFS] program” that will place the RFS on track to produce fuels with the lowest life-cycle carbon emissions compared to petroleum.

“Once we remove the corn ethanol mandate, the RFS program can finally serve its intended purpose: to support the development of advanced, environmentally friendly biofuels like biodiesel, cellulosic ethanol and other revolutionary fuels,” she adds. But it is uncertain whether the amendment will be approved, given the strong support for the RFS and the corn ethanol industry in the Senate if the measure were to be debated.

But the oil industry, which has been a key advocate for similar RFS measures in the 113th Congress, wants the Senate to save the RFS fight for another day in order to pass a “clean” bill approving the pipeline, which for now takes precedent over opposition to the RFS, according to a spokesman for the American Petroleum Institute (API).

“RFS reform and repeal are important priorities for this year, and it’s time will come. But right now we need to focus on passing a clean bill that finally approves the Keystone XL pipeline to create jobs and make North America more energy secure,” the API spokesman says in a statement to InsideEPA/climate.

Under the RFS, EPA sets annual fuel production targets for various renewable fuels that emit fewer GHGs than conventional gasoline. Cellulosic and advanced biofuels have the lowest carbon footprint of the fuels required to comply, with cellulosic generally having to emit 60 percent fewer GHGs than petroleum while advanced biofuels must emit 50 percent fewer GHGs.

But EPA’s targets drive fights between refiners and other obligated parties that must meet the rules’ blend targets and biofuels advocates who seek larger targets in part to drive demand.

Refiners, who say EPA should set achievable targets, have been especially concerned because the agency has in the past set targets for cellulosic fuels that are significantly higher than what has been produced, forcing refiners to purchase costly compliance credits from the agency to offset the lack of production.

The dispute forced EPA to announce late last year that it was delaying its 2014 RFS volumes until sometime in 2015, and is considering using that time to propose the 2015 and 2016 requirements alongside the finalization of 2014.

But more cellulosic and other fuels are now available as large companies ramped up production and EPA eased its rules to create additional fuel pathways for producers to meet the mandates. EPA’s latest renewable fuel tracking data shows a sizable increase in the volume of cellulosic and other low-carbon biofuels being produced, making it more likely that the agency will decide to increase the RFS blending requirements in the future.

Senate Amendment

Feinstein and Toomey’s “Corn Ethanol Mandate Elimination Act of 2015,” introduced as an amendment to the contentious pipeline bill, would rescind the RFS program’s conventional biofuel standard that is primarily met by blending corn ethanol in gasoline, while preserving the program’s requirements for producing biofuels with the lowest greenhouse gas (GHG) emissions, such as cellulosic and advanced biofuels that are derived from waste and non-food grains.

The lawmakers introduced the amendment as the Senate is beginning to debate S. 1, a bill approving the northern leg of the Keystone XL pipeline which is slated to transport high-carbon tar sands crude oil from Canada to Cushing, OK, where it will join with already approved pipelines to transport it to refineries in the Gulf of Mexico.

API’s call for a clean Keystone bill may be driven by the fact that the measure may not have enough support to override the almost certain veto that President Obama has vowed to issue for the underlying bill.

But the Feinstein/Toomey amendment may not overcome opposition from a unified biofuel sector to pass muster. Even with the program’s low-carbon requirements intact, it is unlikely that the cellulosic and advanced biofuel industries will support such a measure, as much of the industry is firmly in support of the broad RFS — believing that all the program’s requirements are irrevocably linked and removing one would erode the market for the others.

One cellulosic industry source says “we wouldn’t go for it,” even with Feinstein saying the amendment is meant to support the development of second generation biofuels. The source explains that the amendment would in fact have the effect of significantly harming the entire program.

And “since the cellulosic industry is only now beginning to ramp up, it would likely cut the entire standard down to a few billion gallons a year by 2022,” the source explains. “That kind of market contraction would scare off all investment in the industry.”

The source also explains that such a change in the RFS would also be a “financial headache” for the refiners and API member companies that are the obligated parties under the program. The source explains that the obligated parties have purchased, traded and stockpiled renewable identification number (RIN) credits that they use to comply with the RFS. But under the Feinstein measure, “Those costs and investments would be lost,” the source says.

In a statement, the Renewable Fuels Association (RFA) condemned the amendment, saying it would be a step backward for achieving the nation’s climate and energy goals. “This amendment is an unnecessary solution to an imaginary problem. If approved, it would set our nation’s energy, economic, and climate agenda back decades,” said Bob Dinneen, RFA’s president and CEO. RFA is a leading member of a coalition of biofuel trade groups called Fuels America that has been actively resisting RFS repeal on the Hill.

“The Feinstein/Toomey amendment is founded upon a false premise,” Dinneen said. “The sponsors claim the so-called corn ethanol mandate drives up the price of corn, food, and gas. The fact of the matter is that corn is less expensive today than when the RFS was passed in 2007.

There is simply no truth to the notion that ethanol has driven up the price of food. In fact, the UN concluded that food prices are driven more by the price of energy than the cost of commodities. To that point, ethanol has been less expensive than [gasoline] for the better part of the past four years and has helped reduce consumer pain at the pump.”

Jack Gerard, API president and CEO, in a Jan. 15 call with reporters said that the industry’s near-term focus on the RFS is to press EPA to issue a final rule setting the 2014 biofuel blending requirements. He reiterated previous statements from a major Jan. 6 policy address, where he said the oil industry “cannot run on guesswork,” saying EPA is now 2 years behind in issuing the annual RFS blending requirements.

“EPA’s inability to manage this program . . . leaves U.S. refiners in the dark about regulatory requirements,” he said, adding that ultimately Congress will need “to act to correct” the RFS “since a well-intentioned Congress created the problem.”